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GVK Power & Infrastructure
Neutral
GVKP.BO, GVKP IN
4QFY11 results: higher costs impact earnings
• 4Q PAT lower than estimated on account of higher than expected
operating and maintenance costs at power and road verticals. GVK
reported PAT of Rs368M (+14% yoy) below JPM est. of Rs445M; while
FY11 PAT of Rs1.5B disappointed by 5%. Highlights: Power: i) lower
fuel supply impacted PLF at J1 (71%), while J2 and Gautami operated at
a PLF of 86% / 85%: Severe fuel constraints factored into our 70% PLF
estimate across plants, starting FY12 ii) At Rs2.1mn/MW vs. JPM est. of
Rs1.8 in FY11, O&M expenses higher than expected. Roads: traffic
growth of 7% YoY but O&M costs have not declined as expected.
Airports: At 14% and 17%, yoy growth in PAX traffic at Mumbai and
Bangalore airports respectively were stronger than expected (JPM est. of
10.4% and 11% respectively).
• Estimate changes: We increase our consolidated earnings estimates by
4-7% through FY14, accounting for good traffic and higher margins at
BIAL. We suspect one-offs in maintenance costs at power and roads,
hence leave these expense estimates unchanged. In a departure from past
practice, the management is not holding an earnings call this time.
• Our concerns on the stock arise from potential balance sheet and
equity dilution risks from the company’s growth proposals at
Australia, Indonesia, etc. See recent downgrade note ‘Stretching its
goals, downgrade to Neutral’. While sustained stock underperformance
seems to reflect these concerns, we think the following triggers are
necessary for a decisive bounceback: a) clarity on capex requirements
and mode of funding, b) real estate monetization of 1.04M sft near
Mumbai airport (looks like a scale-down from the earlier plan to sell 2M
sft) in 2QFY12, c) easing of interest rates and return of risk appetite, d)
clarity on airport tariff regulations and e) easing fuel availability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GVK Power & Infrastructure
Neutral
GVKP.BO, GVKP IN
4QFY11 results: higher costs impact earnings
• 4Q PAT lower than estimated on account of higher than expected
operating and maintenance costs at power and road verticals. GVK
reported PAT of Rs368M (+14% yoy) below JPM est. of Rs445M; while
FY11 PAT of Rs1.5B disappointed by 5%. Highlights: Power: i) lower
fuel supply impacted PLF at J1 (71%), while J2 and Gautami operated at
a PLF of 86% / 85%: Severe fuel constraints factored into our 70% PLF
estimate across plants, starting FY12 ii) At Rs2.1mn/MW vs. JPM est. of
Rs1.8 in FY11, O&M expenses higher than expected. Roads: traffic
growth of 7% YoY but O&M costs have not declined as expected.
Airports: At 14% and 17%, yoy growth in PAX traffic at Mumbai and
Bangalore airports respectively were stronger than expected (JPM est. of
10.4% and 11% respectively).
• Estimate changes: We increase our consolidated earnings estimates by
4-7% through FY14, accounting for good traffic and higher margins at
BIAL. We suspect one-offs in maintenance costs at power and roads,
hence leave these expense estimates unchanged. In a departure from past
practice, the management is not holding an earnings call this time.
• Our concerns on the stock arise from potential balance sheet and
equity dilution risks from the company’s growth proposals at
Australia, Indonesia, etc. See recent downgrade note ‘Stretching its
goals, downgrade to Neutral’. While sustained stock underperformance
seems to reflect these concerns, we think the following triggers are
necessary for a decisive bounceback: a) clarity on capex requirements
and mode of funding, b) real estate monetization of 1.04M sft near
Mumbai airport (looks like a scale-down from the earlier plan to sell 2M
sft) in 2QFY12, c) easing of interest rates and return of risk appetite, d)
clarity on airport tariff regulations and e) easing fuel availability.
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